Australia's APRA Runs First System Risk Stress Test of Banks and Super Funds

Australia's prudential regulator has published the results of its first System Risk Stress Test, a landmark exercise examining how stress could travel between the country's major banks and large superannuation funds. The information paper modelled four major banks and six large super funds against a severe scenario requiring around 174 billion Australian dollars in cumulative liquidity, equivalent to just under 16% of the funds' net assets, testing how the system would cope if member balances fell sharply and members switched investment options at the same time. Unlike traditional tests focused on a single sector, the exercise probed the interconnections between banking and superannuation, reflecting the growing scale and systemic importance of Australia's retirement savings pools. Analysts noted that the scenario has implications beyond the funds themselves, including for insurance provided through superannuation, such as default death and disability cover, whose pricing and funding arrangements assume a degree of stability in member balances and contributions. The regulator stressed the exercise was exploratory and did not imply that existing frameworks had failed. The findings are likely to inform how banks, funds and insurers manage liquidity, concentration and operational risks in a more volatile environment.